Apr 192016
 
 April 19, 2016  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


G.G. Bain Pelham Park Railroad, City Island monorail, NY 1910

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)
US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)
Asia’s Rich Urged to Buy US Dollars (BBG)
It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)
China Will Bring All The BRICS Tumbling Down (Forbes)
China March Home Prices Rise At Fastest Rate In Two Years (Reuters)
Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)
Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)
Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)
A New Map for America (NY Times)
No One Worries Enough About Black Swans (ZH)
Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)
Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)
Every Move You Make Is Being Monitored (Whitehead)
The Elephant Cometh (Jim Kunstler)
Over 400 Migrants Drown On Their Way To Italy (Reuters)

“Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings..”

The Hole at the Center of the Rally: S&P Margins in Decline (BBG)

Stocks are rising, the worst start to a year is a memory, and short sellers are getting pummeled. And yet something is going on below the surface of earnings that should give bulls pause. It’s evident in quarterly forecasts for the Standard & Poor’s 500 Index, where profits are declining at the steepest rate since the financial crisis relative to revenue. The divergence reflects a worsening contraction in corporate profitability, with net income falling to 8% of sales from a record 9.7% in 2014. Bears have warned for years that such a deterioration would sound the death knell for a bull market that is about two weeks away from becoming the second-longest on record even as productivity sputters and industrial output weakens.

While none of it has prevented stocks from advancing in seven of the last nine weeks, rallies have seldom weathered a decline in profitability as violent as this one – and the squeeze is often a bad sign for the economy, too. “Analysts have seen the string pull as far as it can go, and there is no way for it to go but to reverse for the moment,” said Barry James at James Investment Research in Xenia, Ohio. “Without the Federal Reserve chipping in with quantitative easing, investors have to go back to valuations and earnings, and both of those – one is high and the other is low – that’s not a very good recipe for stocks.” James said his firm is raising cash amid the recent rally in stocks.

While energy producers are expected to suffer the biggest contraction in margins because of plunging oil prices, with a 28% drop in sales accompanying a first-quarter loss, analyst predicted six of the other 10 S&P 500 industries will also report lower profitability. Financial and raw-materials companies will see income growth trailing sales by at least 12 percentage points.

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It’s just like China.

US Nonfinancial Debt Rises 3.5 Times Faster Than GDP (Mauldin)

In my recent Outside the Box, good friend Dr. Lacy Hunt of Hoisington Investment Management gave us more ammunition to take on those who just don’t seem to get that the endless piling up of debt is not a sustainable way to run an economy. The most striking feature of the US economy’s performance in 2015, according to Lacy, was a massive advance in nonfinancial debt that kept the economy stuck in the doldrums of subpar growth.

US nonfinancial debt rose 3.5 times faster than GDP last year. (Nonfinancial debt is the sum of household debt, business debt, federal debt, and state and local government debt. Lacy also points out unfavorable trends in each component of nonfinancial debt.

Household debt: Delinquencies in household debt moved higher even as financial institutions continued to offer aggressive terms to consumers, implying falling credit standards. Furthermore, the New York Fed said subprime auto loans reached the greatest%age of total auto loans in ten years. Moreover, they indicated that the delinquency rate rose significantly.

Business debt: Last year business debt, excluding off balance sheet liabilities, rose $793 billion, while total gross private domestic investment (which includes fixed and inventory investment) rose only $93 billion. Thus, by inference this debt increase went into share buybacks, dividend increases, and other financial endeavors…. When business debt is allocated to financial operations, it does not generate an income stream to meet interest and repayment requirements. Such a usage of debt does not support economic growth, employment, higher paying jobs, or productivity growth. Thus, the economy is likely to be weakened by the increase of business debt over the past five years.

Federal debt: US government gross debt, excluding off balance sheet items, gained $780.7 billion in 2015 or about $230 billion more than the rise in GDP…. The divergence between the budget deficit and debt in 2015 is a portent of things to come. This subject is directly addressed in the 2012 book The Clash of Generations, published by MIT Press, authored by Laurence Kotlikoff and Scott Burns. They calculate that on a net present value basis the US government faces liabilities for Social Security and other entitlement programs that exceed the funds in the various trust funds by $60 trillion. This sum is more than three times greater than the current level of GDP.

State and local government debt: State and local governments … face adverse demographics that will drain underfunded pension plans…. The state and local governments do not have the borrowing capacity of the federal government. Hence, pension obligations will need to be covered at least partially by increased taxes, cuts in pension benefits or reductions in other expenditures.

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The currency wars simmer on. Time for the vigilantes.

Asia’s Rich Urged to Buy US Dollars (BBG)

Money managers for Asia’s wealthy families are telling clients to buy U.S. dollars as a rally this year in regional currencies begins to sputter. Credit Suisse is advising its private-banking clients to bet the greenback will gain versus a basket of peers that includes the South Korean won, Taiwan dollar, Thai baht and Philippine peso. UBS said investors should buy the currency against the Singapore dollar and yen. Stamford Management, which oversees about $250 million for Asia’s rich, urged clients to buy the U.S. dollar each time it falls below S$1.35. The Monetary Authority of Singapore’s unexpected easing on April 14 has fueled speculation that other policy makers, concerned about a worsening global economic outlook, will follow suit.

A gauge of 10 Asian currencies excluding the yen has fallen 0.1% this month. The Bloomberg-JPMorgan Asia Dollar Index climbed 1.9% in the first three months of the year, the first gain in seven quarters, as traders adjusted bets on the timing of U.S. interest-rate increases. “We see good opportunity now to hedge against U.S. dollar strength after the strong rally in Asian currencies in the first quarter,” said Koon How Heng at Credit Suisse in Singapore. “There are risks that other Asian central banks may follow up with some more easing in the second half if their respective growth outlooks deteriorate further.” The prospect of renewed weakness in the Chinese yuan and two interest rate increases by the Federal Reserve in the second half of the year will boost the greenback, Heng said.

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“China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan [..] Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year.”

It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market (BBG)

The unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel. Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 60.6 billion yuan ($9.4 billion) of bond sales in April alone, while Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003. While bond yields in China are still well below historical averages, a sustained increase in borrowing costs could threaten an economy that’s more reliant on cheap credit than ever before.

The numbers suggest more pain ahead: Listed firms’ ability to service their debt has dropped to the lowest since at least 1992, while analysts are cutting profit forecasts for Shanghai Composite Index companies by the most since the global financial crisis. “The spreading of credit risks is only at its early stage in China,” said Qiu Xinhong at First State Cinda Fund Management. “Many people have turned bearish.” China’s leaders face a difficult balancing act. On one hand, allowing troubled companies to default forces investors to pay more attention to credit risk and accelerates government efforts to curb overcapacity. The danger, though, is that investor panic leads to tighter credit conditions, dealing a blow to President Xi Jinping’s plan to keep the economy growing by at least 6.5% over the next five years.

Economic figures for March reveal a growing dependence on debt. China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan, exceeding all 24 forecasts in a Bloomberg survey as policy makers turned on the taps to support economic growth. Yet even that wasn’t enough to save the seven Chinese companies that reneged on bond obligations this year. Three of those were part-owned by China’s government, seen not long ago as a provider of implicit guarantees for bondholders. Dongbei Special Steel on April 13 missed a third payment since its chairman was found dead by hanging last month, while Chinacoal Group failed to make a distribution on April 6.

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And not just the BRICS.

China Will Bring All The BRICS Tumbling Down (Forbes)

The concept of the BRICs isn’t heard much these days beyond some cooperative institution building efforts. Originally a Goldman Sachs authored attempt to identify growth opportunities for investors (referring to Brazil, Russia, India and China), it was picked up by those countries to symbolise a hoped-for rotation in the world order: away from the old hierarchy of the West and the Rest, towards a more balanced configuration of global economic progress. For inclusiveness, the ‘s’ was eventually capitalised into ‘South Africa’ so that the African continent was not left out. With hindsight, it remains curious that the idea was ever taken seriously beyond the confines of investor advice. The nominated states have little in common, although the public diplomacy of developing economy cooperation has a lingering appeal.

The Russian economy was always based largely on hydrocarbons, and Brazil’s expansion was a broader commodity play. Each, therefore, nurtured an important relationship with China. Now, though, as commodity prices have sunk, China is the only buyer left and has no qualms about driving a hard bargain. Massive Chinese infrastructure investment created the temporary illusion of wealth while global debt levels grew relentlessly. The commodity curse then undermined real economic progress around the world, as elites chased diminishing surplus for patronage and popularity. This has left producers exposed; one – Venezuela – rapidly becoming a wasteland. In other countries, what limited democracy there was has been hollowed out, leaving Russia in a state of egregious industrial and demographic decline, and Brazil confirming stereotypes about Latin American corruption.

All because the orders are drying up and the money has run out. Both Brazil and Russia are facing the possibility of imminent collapse. India, by contrast, is its own story, a perpetual tale of slow promise that plays tortoise to China’s hare. The only real story behind the BRICs was always just the ‘C,’ as in China, and the huge investment boom that powered commodity prices towards the fantasy of a ‘super-cycle’ – another word we don’t hear much anymore – drove the whole world mad. There was money for social programs in Brazil to lift up the poor, money for Putin’s new model army in Russia to restore imperial prestige, and money for the Olympics and World Cup in both countries. Then there was money for London palaces, money for Panamanian bank accounts, money for small wars and some leftover for the supposed institutions of a ‘new world order,’ since deferred.

Now, China’s policy dilemma belongs to everyone. Having spent 15 years sucking consumption and investment from everywhere, China now has a productive capacity it cannot possibly sustain, and faces a world reluctant any longer to make up for the deficiencies in Chinese demand. It therefore confronts a build up of debts it will struggle to pay and investors who expect a return they may not receive.

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Beijing still can’t seem to see the danger.

China March Home Prices Rise At Fastest Rate In Two Years (Reuters)

China’s home prices in March gained at the fastest pace in almost two years but that growth may slow as local authorities tighten home purchase requirements in the two top performing cities on fears of a bubble forming. The southern city of Shenzhen continued to be the top performer, with home prices surging 61.6% from a year ago, followed by Shanghai with a 25% gain. Prices in the two cities were up 3.7% and 3.6% respectively from a month earlier. Average new home prices in 70 major cities rose 4.9% last month from a year ago, picking up from February’s 3.6% rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Monday. March prices were up 1.1% compared to a month ago.

China’s housing market bottomed out in the second half of 2015 on a series of government support measures, but a strong rebound in prices in the biggest cities has sparked concerns that some markets may be overheating, driving Shanghai and Shenzhen’s authorities to tighten downpayment requirements for second homes and raising the eligibility bar for non-residents. While home sales in the two cities plunged as much as 52% after the tightening, prices eased only by single digit, according to data from China Real Estate Index System (CREIS). April’s official data, which will reflect the impact of the tightening measures, is due to be released in mid-May. Area of property sold in the first quarter grew 33.1% to a near three-year high, according to data from the National Bureau of Statistics (NBS) on Friday.

While property in China’s top-tier cities is booming, prices in smaller centers, where most of China’s urban population lives, are still sinking and complicating government efforts to spread wealth more evenly and arrest slowing economic growth. “(Monthly) price rises among cities still showed big differences. Cities with big rises were concentrated in the first-tier and, in part, the hot tier-two cities. Their growth is much faster than other cities, with the rest of the second-tier and third-tier cities relatively stable,” Liu Jianwei, a senior statistician at the NBS, said in a statement accompanying the data. The NBS data showed 40 of 70 major cities tracked by the NBS saw year-on-year price gains, up from 32 in February.

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Another A-class piece from Taibbi.

Why Obama Administration Tries to Keep 11,000 Documents Sealed (Matt Taibbi)

[..] Even after the state took over the companies in September of 2008, Fannie and Freddie continued to buy as much as $40 billion in bad assets per month from the private sector. Fannie and Freddie weren’t just bailed out, they were themselves a bailout, used to sponge up the sins of private firms. The original takeover mechanism was a $110 billion bailout, followed by a move to place Fannie and Freddie in conservatorship. In exchange, the state received an 80% stake and the promise of a future dividend. All told, the government ended up pumping about $187 billion into the companies. But now here’s the strange part. Within a few years after the crash, the housing markets improved significantly, to the point where Fannie and Freddie started to make money again. Lots of money. The GSEs became cash cows again, and in 2012 the government unilaterally changed the terms of the bailout.

Now, instead of taking a 10% dividend, the government decided that the new number it preferred was 100%. The GSE regulator, the Federal Housing Finance Agency (FHFA), explained the new arrangement. “The 10% fixed-rate dividend was replaced with a variable structure, essentially directing all net income to the Treasury,” the FHFA wrote. “Replacing the current fixed dividend in the agreements with a variable dividend based on net worth helps ensure stability [and] fully captures financial benefits for taxpayers.” “I’m not worried about Fannie and Freddie’s health,” said former House Financial Services Committee chair Barney Frank. “I’m worried that they won’t do enough to help out the economy.” Translation: We’re taking all your money, not just the money you owe. In court filings later on, the government offered a strange excuse for this sudden and dramatic change in the bailout terms. It explained that at the time, the GSEs “faced enormous credit losses” and “found themselves in a death spiral.”

The government claimed that the poor financial condition of the GSEs would force the Treasury to throw more money at the operations, increasing the total commitment of taxpayers and leading quickly to insolvency. It absolutely denied any foreknowledge that the firms were on the verge of massive profitability. It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment. This was not a debt that could be paid back. Like a restaurant owner who borrows money from a mobster, the GSEs found themselves in an unseverable relationship.

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Obama visits SA on Wednesday…

Obama Official: Seed Money That Created Al Qaeda Came From Saudi Arabia (P.)

President Barack Obama’s deputy national security adviser said that the government of Saudi Arabia had paid “insufficient attention” to money that was being funneled into terror groups and fueled the rise of Al Qaeda. Ben Rhodes was speaking to David Axelrod in his podcast “The Axe Files” out Monday when he was asked about the validity of the accusation that the Saudi government was complicit in sponsoring terrorism. “I think that it’s complicated in the sense that, it’s not that it was Saudi government policy to support Al Qaeda, but there were a number of very wealthy individuals in Saudi Arabia who would contribute, sometimes directly, to extremist groups. Sometimes to charities that were kind of, ended up being ways to launder money to these groups,” Rhodes said.

“So a lot of the money, the seed money if you will, for what became Al Qaeda, came out of Saudi Arabia,” he added. “Could that happen without the government’s awareness?” Axelrod asked. Rhodes said he doesn’t believe the government was “actively trying to prevent that from happening.” But he said that certain people, within the government or their family members, were able to operate on their own which allowed for the money flows. “So basically there was, at certainly, at least kind of a insufficient attention to where all this money was going over many years from the government apparatus,” Rhodes said. The remarks from Rhodes come as Obama prepares to head to Saudi Arabia on Wednesday and confront the strained relations between the two allies.

The Saudis are still fuming over an Atlantic magazine article that described Obama’s frustrations with Saudi Arabia’s religious ideology, its treatment of women and its rivalry with Iran. Obama also suggested in the piece that Saudi Arabia and other Gulf Arab states are “free riders” who rely too much on the U.S. military. Friction has also been created by a push from relatives of people who died on 9/11 and a bipartisan group of lawmakers to allow U.S. courts to hold the Saudi government responsible if it is found to have played a role in the 2001 attacks.

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Ambrose is always hit and miss. This one is BIG miss: “The scare earlier this year was misguided. It is the next oil supply crunch we should fear most.” No, it’s demand.

Saudis Are Going For The Kill But The Oil Market Is Turning Anyway (AEP)

The collapse of OPEC talks with Russia over the weekend makes absolutely no difference to the balance of supply and demand in the global oil markets. The putative freeze in crude output was political eyewash. Hardly any country in the OPEC cartel is capable is producing more oil. Several are failed states, or sliding into political crises. Russia is milking a final burst of production before the depleting pre-Soviet wells of Western Siberia go into slow run-off. Sanctions have stymied its efforts to develop new fields or kick-start shale fracking in the Bazhenov basin. Saudi Arabia’s hard-nosed decision to break ranks with its Gulf allies at the meeting in Doha – and with every other OPEC country – punctures any remaining illusion that there is still a regulating structure in global oil industry.

It told us that the cartel no longer exists in any meaningful sense. Beyond that it was irrelevant. Hedge funds were clearly caught off guard by the outcome since net ‘long’ positions on the futures markets were trading at a record high going into the meeting. Brent crude plunged 7pc to $41 a barrel in early Asian trading, but what is more revealing is how quickly prices recovered. Market dynamics are changing fast. Output is slipping all over the place: in China, Latin America, Kazakhstan, Algeria, the North Sea. The US shale industry has rolled over, though it has taken far longer than the Saudis expected when they first flooded the market in November 2014. The US Energy Department expects total US output to drop to 8.6m barrels per day (b/d) this year from 9.4m last year.

China is filling up the new sites of its strategic petroleum reserves at a record pace. Its oil imports have jumped to 8m b/d this year from 6.7m in 2015, soaking up a large part of the global glut. Some is rotating back out again as diesel: most is being consumed in China. Goldman Sachs says the twin effect of rising demand and supply disruptions across the world is bringing the market back into balance, leading to a “sustainable deficit” as soon as the third quarter. The inflexion point could come sooner than almost anybody expects if a strike this week in Kuwait drags on as oil workers fight pay cuts. The outage is already costing 1.6m b/d. Kuwait’s woes are the first taste of how difficult it will be for the petro-sheikhdoms to impose austerity measures or threaten the cradle-to-grave social contracts that keep a lid on dissent across the Gulf.

There is little doubt that Mohammad bin Salman, the deputy-crown prince and de facto ruler of Saudi Arabia, wanted an excuse to sabotage the Doha deal. He added a fresh demand that non-OPEC Norway should also limit output – a non-starter – as well as hardening the Saudi objection to Iran’s full return to pre-sanctions output. The calculus is that his country has the deepest pockets and will ultimately stand to gain by shaking out weaker players. This is a gamble. Saudi Arabia is running through $10bn of foreign exchange reserves a month to plug its fiscal deficit. The fixed riyal peg makes it much harder to roll with the budgetary punches as Russia is able to do with the floating rouble. Saudi Arabia is not as rich as often supposed. Per capita income is the same as in Greece. Standard & Poor’s has cut its credit rating twice to A-, and for good reason. The Saudis never built up a proper sovereign wealth fund in good times. Their reserve coverage is two-thirds less than in Kuwait, or Abu Dhabi.

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Decentralization goes global.

A New Map for America (NY Times)

These days, in the thick of the American presidential primaries, it’s easy to see how the 50 states continue to drive the political system. But increasingly, that’s all they drive — socially and economically, America is reorganizing itself around regional infrastructure lines and metropolitan clusters that ignore state and even national borders. The problem is, the political system hasn’t caught up. America faces a two-part problem. It’s no secret that the country has fallen behind on infrastructure spending. But it’s not just a matter of how much is spent on catching up, but how and where it is spent. Advanced economies in Western Europe and Asia are reorienting themselves around robust urban clusters of advanced industry. Unfortunately, American policy making remains wedded to an antiquated political structure of 50 distinct states.

To an extent, America is already headed toward a metropolis-first arrangement. The states aren’t about to go away, but economically and socially, the country is drifting toward looser metropolitan and regional formations, anchored by the great cities and urban archipelagos that already lead global economic circuits. The Northeastern megalopolis, stretching from Boston to Washington, contains more than 50 million people and represents 20% of America’s gross domestic product. Greater Los Angeles accounts for more than 10% of G.D.P. These city-states matter far more than most American states – and connectivity to these urban clusters determines Americans’ long-term economic viability far more than which state they reside in. This reshuffling has profound economic consequences.

America is increasingly divided not between red states and blue states, but between connected hubs and disconnected backwaters. Bruce Katz of the Brookings Institution has pointed out that of America’s 350 major metro areas, the cities with more than three million people have rebounded far better from the financial crisis. Meanwhile, smaller cities like Dayton, Ohio, already floundering, have been falling further behind, as have countless disconnected small towns across the country. The problem is that while the economic reality goes one way, the 50-state model means that federal and state resources are concentrated in a state capital – often a small, isolated city itself – and allocated with little sense of the larger whole. Not only does this keep back our largest cities, but smaller American cities are increasingly cut off from the national agenda, destined to become low-cost immigrant and retirement colonies, or simply to be abandoned.

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Taleb’s take-down of Noah Smith on Twitter has been epic.

No One Worries Enough About Black Swans (ZH)

Over the weekend, Bloomberg View’s quasi-economist wrote his latest laughable article, one which supposedly “explained” how “Everyone Worries Too Much About ‘Black Swans'”, which in addition to being a rambling, meandering stream of consciousness that as is regularly the case with this particular author, made little sense, sparked a Twitter feud with the Nassim Taleb, the person who made the concept of a Black Swan into a household name. We were therefore very amused to note that none other than former FX trader and fund manager, Richard Breslow, who also writes for Bloomberg, seemingly had an epileptic fit upon reading the abovementioned drivel and wrote his own scathing reaction from the perspective of an actual trader, a rection which not only threw up on every argument of the so-called economist’s logic, but on everything else that now is passed off simply as, well, “the new normal.” Here is Richard Breslow:

No One Worries Enough About Black Swans

Trading is a hard business. The world is becoming a more complicated place: a number out of China may do more to the price of your U.S. shares in a retailer than, well, U.S. retail sales. Yet creeping, dangerously, into the investment advice dialog is the argument that buying and holding no matter what the event is the winning strategy. If you ever needed a “past results don’t guarantee…” disclaimer it’s especially true now. It’s not surprising that such shallow reasoning is becoming commonplace. Sure beats staying late at the office doing cash-flow analysis. Bad things happen and the Fed will cut rates. Worked time and again. Presto chango, that financial crisis was a buying event, stupid.

It’s gotten much worse post the latest financial crisis, as it’s assumed asset prices are the main (sole) focus of the all powerful central banks. To buy (pun intended) into this you have to presuppose that Black Swan events are easily controllable episodes that last short amounts of time. That the authorities have unlimited firepower to counteract every natural and man-made disaster. Equally scary, academics as well as analysts have taken to arguing that investors are overestimating the probability of crisis events. You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years. Did a crisis happen, if you made money?

This flawed logic argues not only buy every dip, but why waste money on hedges? It assumes unlimited deep pockets and the nerve of a non-sentient computer. Just go “all in.” Looking more like today’s world all the time. Portfolio theory thrown right out the window. Perhaps Harry Markowitz will have his Nobel revoked. A portfolio built to only withstand stress thanks to central bank intervention is one destined to blow-up spectacularly. The embedded flaw in this new logic is that central banks give investors perfect foresight. And nothing can go wrong. Re-read the Investment Process section of those prospectuses.

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“His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.”

Credit Suisse: Germany’s Large Surplus Is The Problem, Not the ECB (BBG)

Forget about Greek debt sustainability. Another part of the continent is in need of relief—and this time, it’s a part of the core, not the periphery. That’s how Credit Suisse analysts led by Peter Foley characterized comments from German Finance Minister Wolfgang Schaeuble earlier this month. “The German Finance minister said record low interest rates were causing ‘extraordinary problems’ for German financial institutions and pensioners and risked undermining voters’ support for European integration,” writes Foley. “His words sounded like a request of a bailout for his countries’ saving industry and savers, in an ironic twist from previous bailout requests coming from the periphery.” A common criticism of unconventional central bank policy is that the ultra-low interest rates are too onerous for savers. At present, the average German bund yield is barely above zero:

Some analysts have expressed more than a modicum of sympathy for Schaeuble’s position, indicating that the ECB’s policy represents a form of John Maynard Keynes’ prophesied ‘euthanasia of the rentier’ and is not justified by its positive side effects. But instead of blaming the ECB, Foley suggests that German fiscal policymakers should pull the levers at their disposal to help remedy this situation. “Germany has continued to run a large current account surplus, and has increased it further–from 5.7% of GDP in 2009 to 8.5% in 2015,” wrote the analyst, noting that this surplus constituted the largest imbalance among major economies by this metric. “In an environment short on aggregate demand, Germany’s surplus is a problem, both globally and to the rest of the euro area.”

Foley recommends that the German authorities move to more aggressively reduce financial imbalances by increasing public investment, support private demand in certain soft segments, and implement more structural reforms. This would support Germany’s growth as well as that of its European partners, and as an added bonus, would address Schauble’s concerns about the woes of savers all in one fell swoop, the analyst concludes, by lessening the ECB’s need to support the currency union with unconventional stimulus.

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I see a hot summer.

Talks With Creditors To Resume But Athens Rejects Fresh Austerity (Kath.)

With talks set to resume on Tuesday with Greece’s international creditors, Athens said on Monday it has no intention of implementing austerity measures beyond the commitments it signed on to in the third bailout last July and plans to seek “allies” among European countries that believe now is not the time create political instability in Greece. Government spokeswoman Olga Gerovasili said on Monday that Athens will abide by the commitments it made last July, “nothing more, nothing less.” Her comments came after the IMF and the EU, which overcame their differences at the weekend over Greece’s budgetary outlook, took the wind out of the government’s sails by seeking another package of austerity measures to the tune of more than €3 billion (or 2% of GDP) in case there are target shortfalls over the next three years as a “guarantee” that Greece will achieve a primary budget surplus of 3.5% of GDP in 2018.

The government’s apparent defiance on Monday is a departure from its initial response at the weekend, when it implied that it could be open to discussion over the new measures – which relate to 2018 – as long as it received reassurances that it will get debt relief. Failure to wrap up the review could see negotiations drag on into June, which would put a further strain on the SYRIZA-led coalition’s fragile government, already struggling to stay afloat with a very slim majority of three deputies in Parliament. However, the new turn of events could foil the government’s ambitions, which include reaching a staff level agreement by Friday’s Eurogroup meeting in Amsterdam, to unlock vital tranches of rescue funds and pave the way for debt relief talks – a key demand by Greece.

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“..Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist.”

Every Move You Make Is Being Monitored (Whitehead)

“The way things are supposed to work is that we’re supposed to know virtually everything about what [government officials] do: that’s why they’re called public servants. They’re supposed to know virtually nothing about what we do: that’s why we’re called private individuals. This dynamic – the hallmark of a healthy and free society – has been radically reversed. Now, they know everything about what we do, and are constantly building systems to know more. Meanwhile, we know less and less about what they do, as they build walls of secrecy behind which they function. That’s the imbalance that needs to come to an end. No democracy can be healthy and functional if the most consequential acts of those who wield political power are completely unknown to those to whom they are supposed to be accountable.” – Glenn Greenwald

 

Government eyes are watching you. They see your every move: what you read, how much you spend, where you go, with whom you interact, when you wake up in the morning, what you’re watching on television and reading on the internet. Every move you make is being monitored, mined for data, crunched, and tabulated in order to form a picture of who you are, what makes you tick, and how best to control you when and if it becomes necessary to bring you in line. Simply by liking or sharing this article on Facebook or retweeting it on Twitter, you’re most likely flagging yourself as a potential renegade, revolutionary or anti-government extremist—a.k.a. terrorist. Yet whether or not you like or share this particular article, simply by reading it or any other articles related to government wrongdoing, surveillance, police misconduct or civil liberties is enough to get you categorized as a particular kind of person with particular kinds of interests that reflect a particular kind of mindset that might just lead you to engage in a particular kinds of activities.

Chances are, as the Washington Post reports, you have already been assigned a color-coded threat score—green, yellow or red—so police are forewarned about your potential inclination to be a troublemaker depending on whether you’ve had a career in the military, posted a comment perceived as threatening on Facebook, suffer from a particular medical condition, or know someone who knows someone who might have committed a crime. In other words, you might already be flagged as potentially anti-government in a government database somewhere—Main Core, for example—that identifies and tracks individuals who aren’t inclined to march in lockstep to the police state’s dictates. The government has the know-how.

As The Intercept recently reported, the FBI, CIA, NSA and other government agencies are increasingly investing in and relying on corporate surveillance technologies that can mine constitutionally protected speech on social media platforms such as Facebook, Twitter and Instagram in order to identify potential extremists and predict who might engage in future acts of anti-government behavior. Now all it needs is the data, which more than 90% of young adults and 65% of American adults are happy to provide.

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“This will go on until it can’t, which is what discontinuity is all about.”

The Elephant Cometh (Jim Kunstler)

The elephant’s not even in the room, which is why the 2016 election campaign is such a soap opera. The elephant outside the room is named Discontinuity. That’s perhaps an intimidating word, but it is exactly what the USA is in for. It means that a lot of familiar things come to an end, stop, don’t work the way they are supposed to — beginning, manifestly, with the election process now underway in all its unprecedented bizarreness. One reason it’s difficult to comprehend discontinuity is because so many operations and institutions of daily life in America have insidiously become rackets, meaning that they are kept going only by dishonest means. If we didn’t lie to ourselves about them, they couldn’t continue.

For instance the automobile racket. Without a solid, solvent middle-class, you can’t sell cars. Americans are used to paying for cars on installment loans. If the middle class is so crippled by prior debt and the disappearance of good-paying jobs that they can’t qualify for car loans, well, the answer is to give them loans anyway, on terms that don’t really pencil out — such as 7-year loans at 0% interest for used cars (that will be worth next to nothing long before the loan expires). This will go on until it can’t, which is what discontinuity is all about. The car companies and the banks (with help from government regulators and political cheerleaders) have created this work-around by treating “sub-prime” car loans the same way they treated sub-prime mortgages: they bundle them into larger packages of bonds called collateralized loan obligations.

These, in turn, are sold mainly to big pension fund and insurance companies desperate for “yield” (higher interest) on “safe” investments that ostensibly preserve their principal. The “collateral” amounts to the revenue streams of payments that are sure to stop because the payers are by definition not credit-worthy, meaning it was baked in the cake that they would quit making payments — especially when they go “under water” owing ever more money for junkers that have lost all value. It’s easy to see how that ends in tears for all concerned parties, but we “buy into it” because there seems to be no other way to a) boost the so-called “consumer” economy and b) keep the matrix of car-dependant suburban sprawl in operation. We took what used to be a fairly sound idea during a now-bygone phase of history, and perverted it to avoid making any difficult but necessary changes in a new phase of history.

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There is a very strange silence in western media about this.

Over 400 Migrants Drown On Their Way To Italy (Reuters)

Somalia’s government said on Monday about 200 or more Somalis may have drowned in the Mediterranean Sea while trying to cross illegally to Europe, many of them teenagers, when the boat they were on capsized after leaving the Egyptian shore. Italian President Sergio Mattarella had said earlier on Monday that several hundred people appeared to have died in a new tragedy in the Mediterranean, after unconfirmed reports spoke of up to 400 victims of capsizing near Egypt’s coast. More than 1.2 million African, Arab and Asian migrants have streamed into the EU since the start of last year, many of them setting off from North Africa in rickety boats that are packed full of people and which struggle in choppy seas.

“We have no fixed number but it is between 200 and 300 Somalis,” Somali Information Minister Mohamed Abdi Hayir told Reuters by telephone when asked about possible Somali deaths in the latest incident. Another Somali government statement, which offered condolences, put the number at “nearly 200”, saying they were mostly teenagers. It said the boat they were on had capsized after leaving Egypt. “There is no clear number since they are not traveling legally,” the minister said, adding that he understood the boat might have been carrying about 500 people, of which 200 to 300 were Somalis “and most of them had died”. He did not give a precise timing for the incident.

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 December 3, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein “Quack doctor, Pittsburgh, Pennsylvania” 1938

Yellen Says ‘Looking Forward’ To Day Of First Rate Rise In Decade (Reuters)
Opposition To ECB Stimulus Could Lead To Watered-Down QE Plan (FT)
Equities Peak 12-18 Months After A Peak In Margins; We’re Now 15 Months In (ZH)
Commodity-Related -Junk- Bonds Face Big Losses: Moody’s (MarketWatch)
Oil Speculators Risk ‘Short Squeeze’ If Impulsive Saudi Prince Throws OPEC Surprise (AEP)
China Says To Cut Power Sector Emissions By 60% By 2020 (Reuters)
Russia Presents Proof Of Turkey’s Role In ISIS Oil Trade (RT)
The Greatest Economic Collapses in History (Howmuch.net)
Brazil Goes From Crisis to Crisis as Impeachment Bid Moves Ahead (BBG)
Massive El Niño Sweeping Globe Is Now The Biggest Ever Recorded (NS)
More Than A Quarter Of UK Birds Are Fighting For Survival (Guardian)
Kicking Greece Out Of Schengen Won’t Stop The Refugee Crisis (Guardian)
(Greek) EU Commissioner Tells Athens To Speed Up Border Controls (Kath.)
Leaked Memo Reveals EU Plan To Suspend Schengen For Two Years (Zero Hedge)
Greece Is Back At The Heart Of EU’s Existential Crisis (Telegraph)
Detain Refugees Arriving In Europe For 18 Months, Says Tusk (Guardian)
Half A Million Syrian Refugees Could Be Resettled To EU: Hungary PM (Reuters)
Greece Spent €1 Billion On Refugees, Got €30 Million In EU Assistance (Reuters)

It’ll be like Christmas came early.

Yellen Says ‘Looking Forward’ To Day Of First Rate Rise In Decade (Reuters)

Federal Reserve Chair Janet Yellen said on Wednesday she was “looking forward” to a U.S. interest rate rise that will be seen as a testament to the economy’s recovery from recession. Fed policymakers are widely seen raising interest rates for the first time in almost a decade at their next meeting on Dec. 15-16, but they continue to parse data and trends carefully given the uneven nature of the U.S. recovery. In her remarks to the Economic Club of Washington, Yellen expressed confidence in the U.S. economy, saying job growth through October suggested the labour market was healing even if not yet at full strength. Yellen also reaffirmed her view that the drag on U.S. economic growth and inflation from weakness in the global economy and falling commodity prices would moderate next year. U.S. consumer spending was “particularly solid”, she noted.

“When the Committee begins to normalize the stance of policy, doing so will be a testament … to how far our economy has come,” she said, referring to the Fed’s policy-setting committee. “In that sense, it is a day that I expect we all are looking forward to.” Investors are already betting the Fed will lift its benchmark federal funds rate this month from the zero to 0.25% range where it has been held since 2008. Economists also see a strong chance of a December rate rise. The U.S. dollar strengthened on Wednesday and stocks fell on Wall Street, after Yellen’s comments. “I was a little surprised she sounded as hawkish as she did given we’re two days away from the non-farm payrolls report and a couple of weeks away from the Fed FOMC meeting,” said Michael O’Rourke at JonesTrading in Greenwich, CT.

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Can Draghi get even crazier? You bet. Many others do. But will he fight the Germans?

Opposition To ECB Stimulus Could Lead To Watered-Down QE Plan (FT)

The ECB will announce further monetary easing on Thursday to fix the eurozone’s creaking economy, but German-led opposition threatens to limit its firepower, potentially disappointing some investors. The ECB will almost certainly take fresh action after a crucial measure of inflation fell in November, underlining the fragility of the eurozone’s recovery. A revamp of the central bank’s €1.1trn quantitative easing package and a cut to the benchmark deposit rate charged on lenders’ reserves from its current level of minus 0.2% are likely, pitting the eurozone at odds with the US where the Federal Reserve is nearing its first rate hike for nine years. Most of the governing council’s policymakers will support the charge led by ECB president Mario Draghi and his chief economist Peter Praet for an injection of fresh stimulus.

But idiosyncrasies in voting rules and concerns that doing too much, too soon risks leaving the central bank out of options in the event of further economic deterioration could produce a less aggressive package than markets have priced in. Europe’s financial markets have rallied strongly in the lead up to the ECB meeting as investors assume that a deposit rate cut and expansion in QE is all but guaranteed. A survey of economists by Bloomberg reveals how strong the consensus is, with all respondents expecting fresh stimulus, and more than three quarters anticipating an extension of the QE programme and deposit rate cut. According to Swiss bank UBS, a 15 basis point cut to the deposit rate has been priced in, although a 20 basis point cut would not be surprising, while Dutch bank Rabobank forecasts €20bn in additional monthly QE purchases.

[..] Some investors warn that anything less than an additional 10 basis point cut in the deposit rate and extension of the QE programme to 2017 is likely to spark a sell-off in European assets. “It would be very surprising if the ECB does not deliver on its hints after it has stoked market expectations so high,” said Mark Dowding, co head of investment at Bluebay Asset Management. “Mario Draghi needs to tread with caution. If he disappoints investors then you will see sentiment towards the eurozone darken immediately.”

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Anything to do with buybacks?

Equities Peak 12-18 Months After A Peak In Margins; We’re Now 15 Months In (ZH)

Two months ago, we looked at historical examples of what happens with the US economy any time corporate profit margins suffer a drop as large as the one experienced over the past 12 months when margins have plunged by (at least) 60 bps. The outcome: a recession on 5 out of 6 prior occasions. And while the economy is already feeling the recessionary impact of sliding margins as predicted in early October, with the manufacturing ISM printing at its lowest level since the recession, an even more important question is what happens to the stock market now that margins have peaked.

On this topic, most have been mum with the usual “answer” being that margins will keep rising. Alas, as even Goldman recently showed they won’t. So assuming margins have peaked in this cycle, what does that mean for stocks? For the very simple answer we go to Credit Suisse according to which “equities peak 12-18 months after a peak in margins.” Where are we now? “we are now 15 months after the peak in margins.” So, give or take three more months?

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Are people thinking of selling?

Commodity-Related -Junk- Bonds Face Big Losses: Moody’s (MarketWatch)

The oil and gas and metals and mining sectors are facing a spike in defaults and downgrades in 2016 and investors that have piled into their bonds in the hunt for yield are facing major losses, Moody’s warned Wednesday. Companies in those two sectors have issued nearly $2 trillion in bonds globally since 2010, according to the rating agency, many of them in the high-yield — or “junk bond” — category. Now prices of a range of commodities, from oil, to copper, iron ore, gold and coal are at multiyear lows, battered by weak demand and oversupply. “The sheer volume of commodity-related debt poses challenges because it means that credit losses from commodity investments will be substantial for many investors,” said Mariarosa Verde, Moody’s group credit officer and lead author of a report published Wednesday on the credit hazard posed by the current stress in commodity markets.

“Considering the maturing stage of the current credit cycle, mounting losses on commodity company debt seem likely to intensify the capital markets’ swing to greater risk aversion,” she said. Oil and gas and metals and mining issuers represent just 14% of Moody’s nonfinance corporate ratings but accounted for 36% of downgrades through October, and 48% of defaults. Moody’s is expecting the trend to continue in 2016, with 34% of companies on watch for a downgrade or on negative outlook. “Many companies were temporarily cushioned by hedging programs and fixed-price contracts in the early stages of the downturn,” said Daniel Gates, a Moody’s managing director. “Others have been sustained by cash balances that are eroding. Diminishing liquidity and restricted access to capital markets are now pushing more firms closer to default.”

Oil and gas companies dominate U.S. junk-bond issuance, many of them shale plays that emerged during the fracking boom. The steep decline in the price of oil has now made many of them unprofitable, just as their debt-servicing costs are rising.

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Cutting production is supposed to cut the Saudi deficit? Whatever it cuts, others will produce. There’s no way to win this.

Oil Speculators Risk ‘Short Squeeze’ If Impulsive Saudi Prince Throws OPEC Surprise (AEP)

Hedge funds have taken their bets. The market is convinced that Saudi Arabia will ignore the revolt within OPEC at a potentially explosive meeting on Friday, continuing to flood the global markets with excess oil. Short positions on US crude and Brent have reached 294m barrels, the sort of clustering effect that can go wildly wrong if events throw a sudden surprise. The world is undoubtedly awash with oil and the last storage sites are filling relentlessly, but speculators need to be careful. They are at the mercy of opaque palace politics in Riyadh that few understand. Helima Croft, a former analyst for the US Central Intelligence Agency and now at RBC Capital Markets, says the only man who now matters is the deputy crown prince, Mohammed bin Salman.

The headstrong 30-year-old has amassed all the power as minister of defence, chairman of Aramco and head of the Kingdom’s top economic council, much to the annoyance of the old guard. “He is running everything and it comes down to whether he thinks Saudi Arabia can take the pain for another year,” she said. The pretence that all is well in the Kingdom is wearing thin. Austerity is becoming too visible. A leaked order from King Salman – marked “highly urgent” – freezes new hiring and halts public procurement, even down to cars and furniture. The system of cradle-to-grave welfare that keeps a lid on public protest and holds the Wahhabi state together risks unravelling. Subsidies are draining away. It will no longer cost 10p a litre to fill a petrol tank. VAT is coming. There will be a land tax. Yet these measures hardly make a dent on a budget deficit running near $140bn a year, or 20pc of GDP.

The German intelligence agency BND issued an extraordinary report warning that Prince Mohammed is taking Saudi Arabia into perilous waters. “The thus far cautious diplomatic stance of the elder leaders in the royal family is being replaced by an impulsive interventionist policy,” it said. The war in Yemen – Saudi Arabia’s “Vietnam” – grinds on at a cost of $1.5bn month. It is far from clear whether the Kingdom can continue to bankroll Egypt as ISIS operations spread from the Sinai to Cairo suburbs. The risk of a Saudi sovereign default over the next 10 years has suddenly jumped to 23pc, measured by credit default swaps. Riyadh’s three-month Sibor rate watched as a gauge of credit stress has spiked to the highest levels since the Lehman crisis.

Nerves are so frayed in Riyadh that the interior ministry is lashing out blindly. There are reports that more than 50 prisoners are to be beheaded, including Sheikh Nimr al-Nimr, the Shia cleric sentenced to death for leading civic protests in 2012. There is no surer way to light the fuse on wholesale conflagration in the Shia stronghold of the Eastern Province, where the oil reserves lie. Shia underground groups in Iraq have threatened a whirlwind of gruesome revenge if the execution is carried out. This, then, is the state of Saudi Arabia a year into an oil crash that the Kingdom itself engineered to drive out rival producers.

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Sounds good, but reality is lost in translation: nobody’s sure which emissions.

China Says To Cut Power Sector Emissions By 60% By 2020 (Reuters)

China will cut emissions of major pollutants in the power sector by 60% by 2020, the cabinet announced on Wednesday, after world leaders met in Paris to address climate change. China will also reduce annual carbon dioxide emissions from coal-fired power generation by 180 million tonnes by 2020, according to a statement on the official government website. It did not give comparison figures but said the cuts would be made through efficiency gains. In Paris, Christiana Figueres, head of the U.N. Climate Change Secretariat, said she had not seen the announcement, but linked it to expectations that China’s coal use would peak by the end of the decade. “I can only assume they are talking about the same thing,” she told Reuters.

Researchers at Chinese government-backed think-tanks said last month that coal consumption by power stations in China would probably peak by 2020. An EU official, speaking on condition of anonymity, said Wednesday’s announcement seemed to relate more to air pollutants than greenhouse gas emissions. China’s capital Beijing suffered choking pollution this week, triggering an “orange” alert, the second-highest level, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors. The smog was caused by “unfavourable” weather, the Ministry of Environmental Protection said. Emissions in northern China soar over winter as urban heating systems are switched on and low wind speeds meant that polluted air does not get dispersed.

The hazardous air, which cleared on Wednesday, underscores the challenge facing the government as it battles pollution caused by the coal-burning power industry and raises questions about its ability to clean up its economy. Reducing coal use and promoting cleaner forms of energy are set to play a crucial role in China’s pledges to bring its greenhouse gas emissions to a peak by around 2030.

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They’re not fooling around.

Russia Presents Proof Of Turkey’s Role In ISIS Oil Trade (RT)

The Russian Defense Ministry has released evidence which it says unmasks vast illegal oil trade by Islamic State and points to Turkey as the main destination for the smuggled petrol, implicating its leadership in aiding the terrorists. The Russian Defense Ministry held a major briefing on new findings concerning IS funding in Moscow on Wednesday. According to Deputy Defense Minister Anatoly Antonov, Russia is aware of three main oil smuggling routes to Turkey. “Today, we are presenting only some of the facts that confirm that a whole team of bandits and Turkish elites stealing oil from their neighbors is operating in the region,” Antonov said, adding that this oil “in large quantities” enters the territory of Turkey via “live oil pipelines,” consisting of thousands of oil trucks. Antonov added that Turkey is the main buyer of smuggled oil coming from Iraq and Syria.

“According to our data, the top political leadership of the country – President Erdogan and his family – is involved in this criminal business.” However, since the start of Russia’s anti-terrorist operation in Syria on September 30, the income of Islamic State (IS, formerly ISIS) militants from illegal oil smuggling has been significantly reduced, the ministry said. “The income of this terrorist organization was about $3 million per day. After two months of Russian airstrikes their income was about $1.5 million a day,” Lieutenant-General Sergey Rudskoy said. At the briefing the ministry presented photos of oil trucks, videos of airstrikes on IS oil storage facilities and maps detailing the movement of smuggled oil. More evidence is to be published on the ministry’s website in the coming says, Rudskoy said. The US-led coalition is not bombing IS oil trucks, Rudskoy said.

For the past two months, Russia’s airstrikes hit 32 oil complexes, 11 refineries, 23 oil pumping stations, Rudskoy said, adding that the Russian military had also destroyed 1,080 trucks carrying oil products. “These [airstrikes] helped reduce the trade of the oil illegally extracted on the Syrian territory by almost 50%.” Up to 2,000 fighters, 120 tons of ammunition and 250 vehicles have been delivered to Islamic State and Al-Nusra militants from Turkish territory, chief of National Centre for State Defense Control Lt.Gen. Mikhail Mizintsev said. “According to reliable intelligence reports, the Turkish side has been taking such actions for a long time and on a regular basis. And most importantly, it is not planning to stop them.”

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Fun facts.

The Greatest Economic Collapses in History (Howmuch.net)

The very first major economic collapse in recorded history occurred in 218-202 BC when the Roman Empire experienced money troubles after the Second Punic War. As a result, bronze and silver currencies were devalued. As depicted in the video below economic collapses date back thousands of years. While many countries today still feel the effects of the most recent Global Financial Crisis, it is important to note that economic troubles are not unique to the present-day, but rather date back to some of the oldest civilizations.

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Looks increasingly like Rousseff’s afraid she’ll be persecuted one she steps down. The country pays a high price for that fear.

Brazil Goes From Crisis to Crisis as Impeachment Bid Moves Ahead (BBG)

Even in Brazil, a country that is no stranger to crisis, the recent, rapid-fire succession of financial, economic and political blows has been breathtaking. After a week in which the nation’s top young financier was thrown in jail alongside a senator – pushing his bank into a struggle for survival – and Goldman Sachs warned the economy was slipping into a full-blown depression, impeachment proceedings were initiated late Wednesday against President Dilma Rousseff. Though the hearings will ultimately center on whether Rousseff violated fiscal laws, the root of her widespread unpopularity is the same that landed the banker, Andre Esteves, in jail and crippled the economy: an unprecedented corruption scandal that’s hamstrung the country’s biggest companies and triggered policy paralysis in the capital city.

With GDP now shrinking at an annualized pace of almost 7% and the budget deficit swelling to the widest in at least two decades, Brazil’s currency and local bond markets have posted deeper losses than those of any other developing nation this year. “The important thing is that Brazil has a political resolution at some point over the next few months,” said Pablo Cisilino at Stone Harbor Investment in New York. “If impeachment is the way to get it then it’ll be welcomed by the market, but there are so many twists and things that can happen between now and then.” Lower house speaker Eduardo Cunha said Wednesday night he accepted one of 34 requests to impeach the president on charges that range from illegally financing her re-election to doctoring fiscal accounts this year and last.

Impeachment hearings could take months, involving several votes in Congress that ultimately may result in the president’s ouster. Rousseff will challenge any proceedings in the Supreme Court, according to a government official with direct knowledge of her defense strategy.

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It’ll be a while before we understand the scope of the consequences.

Massive El Niño Sweeping Globe Is Now The Biggest Ever Recorded (NS)

The current extreme El Nino is now the strongest ever recorded, smashing the previous record from 1997-8. Already wreaking havoc on weather around the world, the new figures mean those effects will probably get worse. Climate change could be to blame and is known to be making the extreme impacts of El Nino on weather more likely. The 1997-8 El Nino killed 20,000 people and caused almost $97 billion of damage as floods, droughts, fires, cyclones and mudslides ravaged the world.

Now the current El Nino has surpassed the 1997-8 El Nino on a key measure, according to the latest figures released by the US National Oceanic and Atmospheric Agency. El Nino occurs when warm water that has piled up around Australia and Indonesia spills out east across the Pacific Ocean towards the Americas, taking the rain with it. A key measure of its intensity is the warmth of water in the central Pacific. In 1997, at its peak on 26 November, it was 2.8C above average. According to the latest measurements, it reached 2.8C on 4 November this year, and went on to hit 3.1C on 18 November – the highest temperatures ever seen in this region.

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Who needs birds, right?

More Than A Quarter Of UK Birds Are Fighting For Survival (Guardian)

More than a quarter of the UK’s birds including much-loved species such as the curlew and puffin are now fighting for survival, a new report warns. The latest assessment of the status of the UK’s 244 birds has “red-listed” 27% as being of “highest conservation concern” – meaning urgent action is needed to prevent their extinction locally. Most of the 67 species have suffered severe declines, with their numbers or range being halved in recent decades. There has been an increase of 15 species on the red list since the last assessment in 2009. The curlew, recognised by its long, curved beak and distinctive call, has suffered a rapid decline in its UK population of 42% between 1995 and 2008. A report last month called for the upland bird to become the country’s highest conservation priority because of the global importance of its UK population – estimated to represent more than 30% of the west European population.

The curlew is one of five upland species added to the red list alongside the dotterel, whinchat, grey wagtail and merlin. This highlights that many of the UK’s upland species are in increasing trouble, the report warns, with the total number of upland birds on the red list now reaching 12. Forestry, shooting, recreation, renewable energy generation and water storage are all increasingly putting pressure on upland bird populations. Other species remain well below historical levels or are considered to be at risk of global extinction. A growing number of seabirds including the shag and kittiwake have been added to the red list, along with the charismatic puffin, which has suffered a worldwide population decline. In October, puffins were added to the International Union for Conservation of Nature (IUCN) red list of species for the first time, putting them at the same risk of extinction as the African elephant and lion.

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Europe fails on all fronts.

Kicking Greece Out Of Schengen Won’t Stop The Refugee Crisis (Guardian)

According to various German, Hungarian, Slovak, Polish and many other EU government officials, Greece this summer openly denied its responsibility to guard the external borders of Europe. Greece is accused of having failed to register people, to prepare checkpoints for refugees and irregular migrants at so-called hotspots on time, and to relocate as many refugees as it promised to. But blaming a weak Greek administration is an easy and popular way to deflect blame that may lie much closer to home. The immigration minister in Athens tells a different story: he claims that he has been waiting in vain for the Eurodac machines required for taking fingerprints; only a few of those promised ever made it to Greece. And yet, between 25 October and 25 November, out of 45,000 people who arrived in hotspot areas, 43,500 were fingerprinted – mostly by national police officers working around the clock.

The EU has for months been dragging its feet in providing support for overworked Greek border staff. On 2 October, Frontex requested 775 border guards from EU member states and Schengen-associated countries, in large part to assist Greece and Italy in handling the record numbers of migrants at their borders. Until 20 October EU partners had contributed just 291. By mid-November, 133 had been deployed to Greek islands, and Frontex was still issuing desperate requests to EU countries to chip in more officers to help with screening and registration. The criticism of Greece’s failure to meet the hotspot deadlines also rings hollow. Surely EU leaders have known for some time how difficult it would be to meet deadlines – as long ago as 25 Oct they pressured the Greek immigration minister to finish establishing the hotspots at the end of November.

Blaming Greece for its ineffectiveness in relocating refugees is also much easier than admitting that the entire relocation system has collapsed before really finding its feet – something the European commission president, Jean-Claude Juncker, implicitly admitted when he estimated that at the current rate the relocation of 160,000 people from Greece and Italy would be completed in around 2101. Greece has so far relocated 30 people to Luxembourg, Italy another 130 to other EU countries. Last week only one single person was relocated from Italy to Sweden. Another 150 in Greece are documented and waiting to go.

For many EU officials, Greece crossed a line when it refused to let Frontex take control of its borders to the Balkans last week. In fact, this wasn’t the case: all Greece had done was to challenge the absurd terms dictated by Frontex. Frontex proposed an operation plan that would reproduce a policy implemented by western Balkan countries to filter arrivals at border checkpoints by nationality – something that is still illegal by European and international standards. It also assumes that people refused at the border will be transferred to “reception facilities” – without going into detail what this means. Does it mean that the Greek authorities would assist Frontex in filtering nationalities at their northern border and then lock up the tens of thousands who don’t have the right profile?

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Empty rethoric.

(Greek) EU Commissioner Tells Athens To Speed Up Border Controls (Kath.)

European Immigration and Home Affairs Commissioner Dimitris Avramopoulos on Wednesday warned that Greece needs to improve its border controls by mid-December, amid media reports that the country may by expelled from the Schengen Agreement if it fails to do so. In exclusive comments made to Kathimerini, the Greek commissioner noted that the country’s timetable for action was clear and that the situation had to improve considerably by December 17, in time for a new EU Summit on the refugee and migrant crisis. Also on Wednesday, Avramopoulos raised the issue at the College of Commissioners. Responding to a question by Kathimerini as to whether or not a Greek exit from the Schengen area was on the table, he noted that the treaty was founded “on the principles of solidarity and responsibility” and that any “effort to challenge it, in essence challenges these very principles, has no benefit and does not offer a solution.”

Avramopoulos further noted that “The refugee crisis we’re faced with is unprecedented. It does not solely concern first reception or destination countries, but Europe as a whole.” “Despite the stifling pressure put on Greece, it is absolutely vital for the country to complete this effort which will lead to tangible results,” the commissioner said. In his comments to Kathimerini, Avramopoulos stressed that “the immediate and complete implementation of agreed measures at recent summits, both by Greece as well as by other members states, will reinforce safety at sea borders as well as reintroduce control at the northern borders, where non-identified migrants are trying to continue their journey toward the north.”

“The Greek government is aware of the need to speed up the process based on the agreed timetables,” he added. Asked about the timetable, Avramopoulos said “the situation must have improved substantially by December 17, both in terms of the sea and the land borders.” “I’m optimistic that this will put an end to theories of either a Schengen zone collapse or the country exiting the treaty,” the commissioner said.

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Might as well suspend the euro for two years as well.

Leaked Memo Reveals EU Plan To Suspend Schengen For Two Years (Zero Hedge)

Earlier today we reported that in a dramatic and, what to many may seem unfair variation of “carrot and stick” negotiations conducted by European bureaucrats, the EU threatened Greece with indefinite suspension from the Schengen passport-free travel zone unless it overhauls its response to the migration crisis by mid-December, as frustration mounted over Athens’ reluctance to accept outside support. The slap on the face of the Greeks was particularly painful because this warnings of an temporary expulsion from the EU happens just days after Turkey not only got a €3 billion check from Europe because it has been far more “amenable” in negotiating the handling of the hundreds of thousands of refugees that exit its borders in direction Europe, but also was promised a fast-track status in negotiations to be considered for EU accession and visa free travel.

Ironically, it is also Turkey which is the source of virtually all Greek refugee headaches. We summarized the situation earlier as follows: “not only do the Greeks suffer under the weight of 700,000 refugees crossing into its borders from Turkey and headed for a “welcoming Germany” which is no longer welcoming, now they have to suffer the indignity of being ostracized by their own European “equals” who are being remarkably generous with non-EU member Turkey, which may very well be funding ISIS by paying for Islamic State oil and thus perpetuating the refugee crisis, while threatening to relegate Greece into the 4th world, and with visa requirements to get into Europe to boot!” However, it appears there is much more to this story than merely a case of vindication against the Greeks.

As Steve Peers from EU Law Analysis writes, according to a leaked Council memo, Europe’s intention is to put the framework in place for a comprehensive suspension of Schengen for all countries, for a period as long as two years, not just Greece in the process effectively undoing the customs union aspect of the European Union, which also happens to be its backbone. “The following is Council document 14300/15, dated 1 December 2015. It’s entitled ‘Integrity of the Schengen area’, and addressed to Coreper (the body consisting of Member States’ representatives to the EU) and the Council – presumably the Justice and Home Affairs ministers meeting Thursday 3 and Friday 4 December.”

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“This refusal is not because Greece believes it needs no aid; it is because it thinks the offer grossly deficient. If this sounds familiar, that’s because it is.”

Greece Is Back At The Heart Of EU’s Existential Crisis (Telegraph)

Europe’s economic and migrant crises may seem to be entirely separate issues, but parallels between the two are becoming ever more impossible to ignore. I touched on this subject in a column this morning, but since writing, a further common element has emerged. One way or another, Greece always seems to be in the vanguard of every European crisis, and now it’s assumed centre stage in the debacle of Schengen. This is of course because Greece is a frontline state; as such it is one of the main portals for migrants into the European Union. Once in, migrants can travel freely, thanks to Schengen, throughout much of the EU until they reach the country where they wish to claim asylum or otherwise work illegally. Most European states believe that Greece has badly mishandled its responsibilities on border control, and following refusal to accept wider European help in tackling the crisis, the EU is now threatening Greece with expulsion from Schengen.

Such action would essentially divorce Greece from the main body of the EU. As with Britain, which is not a member of Schengen, border controls would have to be established to patrol passage from Greece to the rest of the EU. The EU is able to threaten expulsion because Greece is reluctant to accept limited offers of help, including humanitarian aid and a special mission from Frontex, Europe’s hopelessly inadequate version of a federal borders agency. This refusal is not because Greece believes it needs no aid; it is because it thinks the offer grossly deficient. If this sounds familiar, that’s because it is. Exactly the same thing happened over Europe’s sovereign debt crisis. Limited relief was offered by the EU, but on terms and conditions which Greece found unacceptable. In the end, it was forced to capitulate, the alternative being expulsion from the Euro, which even Alexis Tsipras, the Greek prime minister, found unconscionable.

That will very likely be the outcome of the Schengen fiasco too. The big point here is that the EU, and its inner, Eurozone core, pretend to be a kind of United States of Europe, but are still a hundred miles away from the federal system and institutions that would make it so. When push comes to shove, collective problems are regarded as national liabilities, demanding national solutions. The upshot is that almost no crisis can be properly addressed. When times are good, the EU muddles along harmoniously enough, but when the going gets tough, the whole thing fragments and nation quarrels with nation. The irony is that both the economic and the migrant crises have been made very much worse by Europe’s half completed march to federalism. It pretends federal arrangements, but its institutions lack the political legitimacy to mount credible federal solutions. Europe must either urgently march forward, or it must march back.

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Detain them where, oh Donald? Greece perhaps? Poland? How about we detain Tusk for a few years?

Detain Refugees Arriving In Europe For 18 Months, Says Tusk (Guardian)

Refugees arriving in Europe should be detained for up to 18 months in holding centres across the EU while they are screened for security and terrorism risks, the president of the European council has said. Donald Tusk also put himself strongly at odds with Europe’s most powerful politician, Angela Merkel, by declaring that there was no majority among European governments for a binding quotas system to share refugees between them. The mandatory refugee-sharing regime is the German chancellor’s chief policy for dealing with the migration crisis, not least since about 1 million are expected to enter Germany this year.

In a lengthy interview with the Guardian and five other European newspapers, Tusk, the former Polish prime minister, described Merkel’s open-door policy on refugees as “dangerous” and derided data claiming that Syrian-war refugees made up a majority of those trying to get to Europe. Public confidence in governments’ ability to tackle the immigration crisis would only be restored by a stringent new system of controls on the EU’s external borders, he said. Tusk’s remarks contradicted Berlin’s stance and also the asylum policies being drafted across the street from his Brussel’s office in the European commission. In a reference to Merkel’s comment on the migration crisis, Tusk said “some” European leaders “said that this wave of migrants is too big to stop. I’m absolutely sure that we have to say that this wave of migrants is too big not to stop them.

But this change of approach must be a common effort. It’s not about one leader. “I think that what we can expect from our leaders today is to change this mindset, this opinion, [which is] for me one of the most dangerous in this time.” In a warning to the rest of Europe, Merkel recently told the Bundestag that the survival of the EU’s free-travel Schengen area hinged on whether national governments could agree on a permanent new regime of sharing refugees. In September she pressed for a majority vote at an EU summit making the sharing of 160,000 refugees obligatory despite strong resistance from eastern Europe. Berlin and the commission are now pushing for a more ambitious permanent scheme directly resettling refugees across the EU from Turkey and the Middle East.

[..] ccording to the International Organisation for Migration, nearly two-thirds or 64% of people crossing from Turkey into the EU via the Greek islands by October this year were Syrians – 388,000 of a total of 608,000. A quarter of those making the crossing were children, the IOM said this week. Of 12 deaths in the past week, nine were children and 90 died in October alone.

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“..to avoid diplomatic complications I will not tell you which country Berlin is in….”

Half A Million Syrian Refugees Could Be Resettled To EU: Hungary PM (Reuters)

European Union and Turkish leaders may announce a behind-the-scenes agreement later this week to resettle 400,000 to 500,000 Syrian refugees directly from Turkey to the EU, Hungarian Prime Minister Viktor Orban said on Wednesday. Orban has locked horns with EU partners for years over economic policy, political freedoms and most recently the handling of the migrant crisis, in which the Hungarian leader took a hard line and erected a steel fence along the country’s southern border to keep out migrants. Hungary has firmly resisted the idea of resettlement quotas to distribute more evenly the migrants, most of whom wanted to go to Germany or Sweden.

Speaking to a meeting of Hungarian leaders in Budapest, Orban said he expected intense pressure from Europe to accept some part of those half a million refugees, something he said Budapest could not do. He added that the agreement has already been floated at a recent EU summit in Malta but was abandoned and not included in the EU-Turkey agreements signed at the weekend in Brussels after its proponents could not gather the necessary support for it. “The issue (of resettlement) will be a hot potato in the coming period because even though this could be kept in a semi-secret state… someone somewhere – I think in Berlin this week – will announce that 4-500,000 Syrian refugees could be brought straight from Turkey to the EU,” Orban said.

“This nasty surprise still awaits Europeans.” He alluded to the deal being orchestrated by Germany, and said it could frame the political discourse in Europe in the next few days and weeks. “The pressure will be intense on us and the other Visegrad Four countries (Poland, Slovakia and the Czech Republic),” he said. “They will portend that once the agreement is made by certain parties – and to avoid diplomatic complications I will not tell you which country Berlin is in – we should not only bring these people to Europe but divide them amongst ourselves, as an obligation.” “It will not be an easy one because obviously we cannot accept it like this.”

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“They don’t dare to ask us ‘drown them’, but if you do push-back on a plastic boat in the middle of the sea with 50 or 70 refugees aboard, you’re asking me to drown them..”

Greece Spent €1 Billion On Refugees, Got €30 Million In EU Assistance (Reuters)

With no land borders with the rest of the 26-nation Schengen area, Greece has allowed hundreds of thousands of people, many of them Syrian refugees, to travel from its islands off the Turkish coast across Greece to the northern border with non-EU FYROM as they head for Germany. Mouzalas said that as long as Turkey did not shut down people smugglers operating on its coastline, Athens could not stop frail boats packed with refugees from landing on Greek islands in the Aegean Sea. He said he had taken EU ambassadors out to sea to watch arrivals and asked what Athens should do. “They don’t dare to ask us ‘drown them’, but if you do push-back on a plastic boat in the middle of the sea with 50 or 70 refugees aboard, you’re asking me to drown them,” the minister said.

EU diplomats said suspending Greece from the open-border rules – activating Article 26 of the Schengen treaty so that people arriving at ports and airports from Greece were treated as coming from outside the Schengen zone – could be discussed at a meeting of EU interior ministers on Friday. However, some also said that Greece appeared to be moving now to implement EU measures to control migrants and so a common front against Athens was unlikely as early as this week. “It’s a tool for pushing Greece to accept EU help,” one senior diplomat said. Since migrants have rarely used airlines or international ferries, the main impact of other Schengen states imposing passport checks on arrivals from Greece would be on Greeks and tourists who are vital to the Greek economy.

Lithuanian Foreign Minister Linas Linkevicius told Reuters: “It was said because of (Greece’s) reluctance to protect the border. But now the latest signals are coming that they are taking these measures finally.” EU officials accept Greek criticism that other states have failed to organize facilities to take in refugees but say Athens, despite the economic problems that saw it nearly drop out of the euro zone this year, could do more. Mouzalas said Greece has spent €1 billion in additional unbudgeted funds from its strained budget this year on coping with the refugee influx, and had received a mere €30 million so far in EU assistance due to bureaucracy on both sides. He welcomed EU border agency Frontex assistance to register refugees but said that under Greek law, only Greek forces could patrol its border.

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